Sarbanes-Oxley Whistleblower Protections for Employees in California

The federal Sarbanes-Oxley Act, section 806, allows California employees to sue their employers in federal court if the employer wrongfully terminates or otherwise retaliates against them for reporting potential unlawful conduct.1

work for publicly-traded companies, or subsidiaries or contractors of publicly-traded companies, and

report violations of federal securities fraud laws designed to protect the shareholders of public companies.2

Examples of Sarbanes-Oxley whistleblower cases

Examples of employees who might be able to bring a successful lawsuit under Sarbanes-Oxley whistleblower laws include:

An accountant who works for a publicly-traded company is fired after letting the company's CEO know that the chief financial officer has instructed her to misrepresent certain expenses; and

After an executive at a publicly-traded company files a complaint with the Securities and Exchange Commission (SEC) about certain accounting practices, the executive's boss ostracizes him at work and makes his coworkers do the same.

How can I sue my employer under Sarbanes-Oxley whistleblower law?

If you have been the victim of Sarbanes-Oxley whistleblower retaliation, your first move is to file a complaint with the United States Secretary of Labor. This complaint must be filed within one hundred eighty (180) days of when you first become aware of the retaliation.3

If the Secretary of Labor has not acted in response to your complaint within one hundred eighty (180) days of its filing, you may then sue your employer in federal district court.4

Damages that you could receive in a Sarbanes-Oxley whistleblower suit against your employer include:

public companies (that is, companies whose stock is traded on a public exchange),

companies that are subsidiaries or affiliates of public companies and whose information is included in the consolidated financial statements of the public company, and

companies that are contractors or subcontractors for public companies.7

Example: Trisha is an accountant working for a small startup company. The company's CEO is also its founder. There are less than twenty early-stage investors in the company who own shares of its equity. But the company's stock is not publicly traded.

Trisha starts to suspect that the company's CEO is asking her and other financial professionals to misrepresent its financials to the outside investors to make it appear more profitable than it is. Trisha decides to share her suspicions with a few of the investors. Several weeks later, the CEO fires her.

Trisha does not have the right to sue the company or the CEO under SOX section 806 because the company is not publicly traded or affiliated with a public company. (But she may be able to sue for public policy wrongful termination,)

BUT

Example: Jonathan works for a privately-held investment management company. All of his company's work is done under contract with a large publicly-traded mutual fund company. After he reports financial irregularities at his employer to a supervisor, he is fired with no reason given.

Jonathan may be able to sue his company under Sarbanes-Oxley's whistleblower law because he works for a contractor to a public company.8

2. What types of whistleblower activities are protected under Sarbanes-Oxley?

Section 806 of the Sarbanes-Oxley Act prohibits whistleblower retaliation against employees who

reasonably believe that a violation of federal laws or regulations designed to prevent public-company shareholder fraud is occurring at their employer, and

do any of the following:

provide information about that suspected violation to a federal regulatory or law enforcement agency, a member or committee of Congress, or a supervisor or other person at the employer with the authority to investigate the violation of law,

assist in an investigation of the potential shareholder fraud conducted by any of the parties listed above, or

file or otherwise participate or assist in a proceeding about such a potential violation.9

You are protected by Sarbanes-Oxley's whistleblower law even if it turns out that your employer was not violating federal securities fraud laws--as long as you reasonably believed that such a violation was occurring.10

Example: Kevin is offered a job at a major publicly-traded retail chain right out of college. A few weeks into his job, Kevin is concerned about the company's policy on how certain merchandise returns are accounted for.

Kevin shares his concerns with his supervisors. But they explain to him that actually the company is in full compliance with the law (and it turns out that they are right). Not long after that, Kevin is terminated for performance problems.

Kevin later sues the company for SOX wrongful termination. But he does not have a valid case against his employer because his belief that accounting rules were being violated was not reasonable, and this point had been explained to him by other employees with more experience and knowledge of the issue than he had.11

What if my employer claims it had other legitimate reasons to terminate me?

In order to successfully sue your employer for violating Sarbanes-Oxley whistleblower laws, you need to be able to show that your shareholder-fraud whistleblower activities were a contributing factor in your termination or the retaliation against you. But they do not have to be the ONLY factor.12

So, for example, let's say your employer has to lay off multiple employees for economic reasons--and chooses you as one of these in part because you assisted in an SEC investigation of the employer. In that situation, you would still have a legitimate case against your employer under Sarbanes-Oxley 806.

3. What are the procedures for a lawsuit under the SOX whistleblower protection law?

Under the whistleblower retaliation provisions of Sarbanes-Oxley, before you may file a lawsuit against your employer for prohibited workplace retaliation, you must first file a complaint with the United States Secretary of Labor.13

A complaint about Sarbanes-Oxley whistleblower retaliation must be filed within one hundred eighty (180) days of when the retaliation occurs, or when you first learn of the retaliation (whichever is later).

Once you file the complaint, the Department of Labor has another one hundred eighty (180) days to investigate it. If they have not issued a final decision on it within that window, you have the right to file a lawsuit in a federal court.15

If you choose to file a lawsuit under SOX whistleblower law, the statute of limitations (deadline) for doing so is four (4) years after you learned of the unlawful retaliation.16

4. What kinds of damages can I recover if I am a victim of Sarbanes-Oxley whistleblower retaliation?

Section 806 of the Sarbanes-Oxley Act specifies that employees who suffer wrongful termination or other whistleblower retaliation may be able to receive the following remedies/damages:

Reinstatement in their old job, with the same seniority status they would have had if it had not been for the SOX whistleblower retaliation;

Back pay with interest; and

Compensation for special damages that resulted from the whistleblower discrimination, such as litigation costs, reasonable attorney's fees and expert witness fees.17

In addition, federal courts have held that employees who are the victims of Sarbanes-Oxley whistleblower retaliation may receive damages for other forms of harm as well--for example, emotional distress or damage to their professional reputation.18

Example: Anthony works for a large company. He discovers what he believes to be illegal accounting practices and reports those to a supervisor and to the SEC.

Anthony's boss then identifies him to the entire office as the person who filed the SEC complaint. Anthony is ostracized by his coworkers, and the situation eventually rises to the level of constructive termination. Anthony resigns from his job and gets a new position.

Because Anthony's new job pays as much as his former one, he doesn't suffer any direct economic damages from the workplace retaliation. But he is still able to sue his employer under the Sarbanes-Oxley whistleblower law and is awarded damages for emotional distress caused by his poor treatment at work.19

Call us for help...

For questions about Sarbanes-Oxley whistleblower retaliation, or to discuss your case confidentially with one of our skilled California labor and employment attorneys, do not hesitate to contact us at Shouse Law Group.

We have local employment law offices in and around Los Angeles, San Diego, Orange County, Riverside, San Bernardino, Ventura, San Jose, Oakland, the San Francisco Bay area, and several nearby cities.

Legal References:

18 United States Code ("U.S.C.") 1514A -- Civil action to protect against retaliation in fraud cases [Sarbanes-Oxley whistleblower protection]. ("(a) WHISTLEBLOWER PROTECTION FOR EMPLOYEES OF PUBLICLY TRADED COMPANIES.— No company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l), or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)) including any subsidiary or affiliate whose financial information is included in the consolidated financial statements of such company, or nationally recognized statistical rating organization (as defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c),[1] or any officer, employee, contractor, subcontractor, or agent of such company or nationally recognized statistical rating organization, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee— (1)to provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders, when the information or assistance is provided to or the investigation is conducted by— (A) a Federal regulatory or law enforcement agency; (B) any Member of Congress or any committee of Congress; or (C) a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct); or (2) to file, cause to be filed, testify, participate in, or otherwise assist in a proceeding filed or about to be filed (with any knowledge of the employer) relating to an alleged violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders.")

Same. See also Lawson v. FMR LLC (2014) 134 S.Ct. 1158, 1166. ("In contrast, nothing in § 1514A's [Sarbanes-Oxley whistleblower protection law] language confines the class of employees protected to those of a designated employer. Absent any textual qualification, we presume the operative language means what it appears to mean: A contractor may not retaliate against its own employee for engaging in protected whistleblowing activity.")

18 U.S.C. 1514A -- Civil action to protect against retaliation in fraud cases [Sarbanes-Oxley whistleblower protection]. ("(b) ENFORCEMENT ACTION.— (1) IN GENERAL.—A person who alleges discharge or other discrimination by any person in violation of subsection (a) may seek relief under subsection (c), by— (A) filing a complaint with the Secretary of Labor; or (B) if the Secretary has not issued a final decision within 180 days of the filing of the complaint and there is no showing that such delay is due to the bad faith of the claimant, bringing an action at law or equity for de novo review in the appropriate district court of the United States, which shall have jurisdiction over such an action without regard to the amount in controversy. (D)Statute of limitations.— An action under paragraph (1) shall be commenced not later than 180 days after the date on which the violation occurs, or after the date on which the employee became aware of the violation.")

Same.

18 U.S.C. 1514A -- Civil action to protect against retaliation in fraud cases [Sarbanes-Oxley whistleblower protection]. ("(c) REMEDIES.— (1) IN GENERAL.— An employee prevailing in any action under subsection (b)(1) shall be entitled to all relief necessary to make the employee whole. (2) COMPENSATORY DAMAGES.—Relief for any action under paragraph (1) shall include— (A) reinstatement with the same seniority status that the employee would have had, but for the discrimination; (B) the amount of back pay, with interest; and (C) compensation for any special damages sustained as a result of the discrimination, including litigation costs, expert witness fees, and reasonable attorney fees.")

Day v. Staples, Inc. (D. Mass. 2008) 573 F.Supp.2d 336, 345, aff'd (1st Cir. 2009) 555 F.3d 42. ("They have determined that a plaintiff [in a Sarbanes-Oxley whistleblower retaliation case] need neither show an actual violation of law, nor cite a particular statute that he believed was violated. Rather, Plaintiff must “state particular concerns which, at the very least, reasonably identify [Defendant's] conduct that [Plaintiff] believes to be illegal. More specifically, the reasonableness of Plaintiff's belief “is to be determined on the basis of the knowledge available to a reasonable person in the circumstances with the employee's training and experience."')

Based on the facts of the same.

Feldman v. Law Enforcement Associates Corp. (4th Cir. 2014) 752 F.3d 339, 348. ("“A contributing factor is ‘any factor, which alone or in combination with other factors, tends to affect in any way the outcome of the decision.'" . . . . We agree that Feldman need not show that the activities were a primary or even a significant cause of his termination [in order to have a Sarbanes-Oxley whistleblower wrongful termination case].")

29 Code of Federal Regulations ("C.F.R.") 1980.103. ("(a) Who may file. An employee who believes that he or she has been retaliated against by a covered person in violation of the [Sarbanes-Oxley] Act may file, or have filed on the employee's behalf, a complaint alleging such retaliation. (b) Nature of filing. No particular form of complaint is required. A complaint may be filed orally or in writing. Oral complaints will be reduced to writing by OSHA. If the complainant is unable to file the complaint in English, OSHA will accept the complaint in any language. (c)Place of filing. The complaint should be filed with the OSHA office responsible for enforcement activities in the geographical area where the employee resides or was employed, but may be filed with any OSHA officer or employee.")

28 U.S.C. 1658(a). ("(a) Except as otherwise provided by law, a civil action arising under an Act of Congress [including Sarbanes-Oxley] enacted after the date of the enactment of this section may not be commenced later than 4 years after the cause of action accrues.") See also Jones v. Southpeak Interactive Corp. of Delaware (4th Cir. 2015) 777 F.3d 658, 668. ("It stands to reason, then, that § 1658(b)(1), which hinges on the discovery of such facts, does not apply. Section 1658(a) controls, and because Appellee brought her [SOX whistleblower] suit within that section's four-year window, her claim is not barred.")

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